The hot large cabin sector continues to lift Gulfstream Aerospace despite continued poor performance at the company's Jet Aviation completions business and a "soft" midsize market.
Jay Johnson, chief executive of Gulfstream parent General Dynamics, said fourth quarter revenues, buoyed by Gulfstream's large cabin portfolio, accounted for the "best cash quarter ever" for the company, but that losses incurred by the Jet Aviation "blemished" an otherwise strong year.
The "blemish" translates to two charges totalling $189 million, largely due to delays and losses on three widebody/narrowbody completions at Jet's facility in Basel, Switzerland, legacy programmes that Johnson described as "the most complex completion projects" ever attempted by the company. The customers or aircraft involved have not been identified.
While Johnson said he was "disappointed" with performance that was "not in keeping with General Dynamics' track record", the company is nonetheless committed to the long term prospects for the subsidiary. "We acquired Jet for their global footprint, and as our installed base expands, it will be elemental to our aerospace growth," Johnson said.
Prospects appear to be brighter for Jet as soon as this year. Along with management changes in summer 2011, General Dynamics brought in "subject matter experts", many from Gulfstream, to evaluate the operation. "In the fourth quarter, the magnitude [of the problem] became very clear to us," said Johnson. Changes have included restructuring and strengthening the supply chain.
Despite the losses from Jet, Gulfstream ended the quarter with almost $1.9 billion in revenue, fuelled by delivery of 12 "green" G650 large cabin, ultra long-range business jets. For the year, the company earned $6 billion, up 13% compared to 2010, on deliveries of 90 large cabin and 17 midsize aircraft.
Revenue also came in from the more than 200 customers for the G650 who were required to make a progressive payment for an undisclosed amount when Gulfstream received provisional certification for the aircraft from the US Federal Aviation Administration (FAA) in November, a milestone that also caused an undisclosed number of customers to cancel their orders. Johnson held to a mid-year entry into service for both the new G650 and the new midsize G280, which will replace the G200.
Johnson expected to boost production to 102 large cabin aircraft this year, including 24 green G650s and 78 G450s and G550s, and 10-15 midsize aircraft, predominantly the G280. The company expects to deliver 17 completed G650s in the yar. Johnson said the market continues to be "bifurcated", where demand for light and midsize jets remains "soft" with "modest" activity. "There's still a lot of inventory out there to absorb," Johnson said.
The backlog for the company stands at $17.9 billion, with 64% of orders coming from international customers.